Recent reliefs in Bank Branch Audit due to COVID-19

1. What reliefs are being provided by Reserve Bank of India (RBI) for easing out bank branch audit during these times of coronavirus?

The Reserve Bank of India has brought 3 major circulars in form of COVID-19 regulatory package.

i) COVID 19 Regulatory package- (RBI circular dated 27.03.2020)- This circular relates to relaxation in repayment of Term and working capital facility. Link –COVID-19 – RBI Regulatory Package

ii) COVID 19 Regulatory package – Asset classification and provisioning (RBI circular dated 17.03.2020) –  This circular relates to relaxation in asset classification and provisioning norms. Link –COVID19 Regulatory Package – Asset Classification & Provisioning

iii)  COVID 19 Regulatory package‑ Review of resolution timelines under prudential framework on resolution of stressed asset (RBI circular dated 17.03.2020)- This circular relates to relaxations in review of resolution timelines. Link-COVID19 Regulatory Package – Resolution of Stressed Assets

2. What are major reliefs in COVID 19 Regulatory package (RBI circular dated 27.03.2020)?

• The main purpose of this circular was-

1. To mitigate burden of debt servicing brought about by disruptions on account of COVID.

2. To ensure continuity of viable business- for both borrowers and for the bank.

• Applicability– This relief will be granted to all accounts i.e. both Performing assets (PA) and Non-performing assets (NPA) barring fraud accounts.
• Reliefs granted–

1. Rescheduling of payments of loan in case of Term loan and loans for Working capital facilities.

2. Easing of Working capital finance

• Relaxation from classification as special mention accounts (SMA) and Non-performing assets (NPA).

3. What reliefs are granted in Rescheduling of payments of loan in case of Term loan?

• Applicability– This relief will be applicable to all Term loans (including EMI, interest, principal, bullet payment, credit card dues).
• Relief granted-
• The Loan accounts will be permitted a moratorium period of 3 months on payment of all installment to all types of term loan which falling due between 1^st March,2020 to 31^st May,2020.
• Also residual tenor of the account would be extended to the extent of such moratorium period granted where moratorium period was availed by account.

4. The above reliefs were for Term Loan, how did this package bring ease in Working capital finance?

• Applicability– This relief will be applicable to all Working capital finance excluding bill discounting/LCBD. (includes all CC/OD loans).
• Relief granted-
• The loan accounts will be permitted to defer the recovery of interest applied on working capital finance facilities during the period 1^st March,2020 up to 31^st May,2020.

i.e. interest charged for the month March, April and May will not become due before 31^st May,2020 and those accounts would be considered as “NOT DUE” up to 31.05.2020.

• Circular grants discretion to the lending institution regarding reduction in margin and reassessment of Working Capital cycle during the period up to 31.05.2020.
• Relief will have limited impact on Drawing Power to the extent of reduction in margin and relaxation in Working Capital cycle.
• The relief granted by bank to borrower under the circular will not be considered as concession or restructuring of any condition of bank loan. Status of account will be unchanged, there will be no downgrading of account during the intervening period from 1^st March,2020 up to 31^st May,2020.

5. What are major reliefs in COVID 19 Regulatory package Asset classification and provisioning (RBI circular dated 17.04.2020)- relaxation in asset classification and provisioning norms?

• The circular issued on 27.03.2020 did not mention anything regarding provisioning of loan accounts. It only mentioned relaxation in repayment period.
• Relief in case of asset classification under prudential norms as per IRAC norms–
• I. In case of Term loan–

• Eligibility- i) All Term loan accounts which are standard as on 29.02.2020 and ;

         ii) Moratorium period as per circular Dt. 27.03.2020 is availed by borrower.

• Relief- While calculating the delinquency period (i.e. 90 days), period from 1^st March,2020 to 31^st May,2020 will be excluded.
•  Other Points- 1) Benefit not available if moratorium period not availed.

2) Accounts can be upgraded during the intervening period as circular is silent regarding the same.

II. In case of working capital finance–

• Eligibility- i) All working capital finance accounts which are NOT OUT OF ORDER as on 29.02.2020 i.e. they are standard and ;

ii) Moratorium period as per circular Dt. 27.03.2020 is availed by borrower.

• Relief- The circular grants a relief from determination of OUT OF ORDER status during intervening period of 1^st March,2020 to 31^st May,2020.
• Other Points- If Working Capital account is NPA as on 29.02.2020 because it was overdrawn or out of order for 90 days but later the account was regularized through genuine means during the intervening period, the said account can be upgraded during the intervening period.

6. What are the amendments in case of provisioning norms brought in this COVID regulatory package?

• Applicable- It will be applicable only in case wherein account would have otherwise become NPA as per IRAC norms but have retained the class of asset as performing asset (PA) availing benefits of circular.
• If there is any account which could have turned into NPA between the period 1^st March,2020 to 31^st May,2020 but was not marked NPA because of the relief. Then additional provision @ 10% will be required to be made.

Out of which

-For Quarter ended 31^st March,2020- Provision @5%

-For Quarter ended 30^th June,2020- Provision @5%

• Circular of 27.03.2020 talked only about deferment of repayment. Because of this deferment, reschedule of payment will undergo change wherever the moratorium period has been availed by the borrower.
• Provision is required to be done Account wise and not borrower wise.
• Illustration- Additional provision in case of Term Loan-

• Other Matters-
• Amount of provision can be used for slippage of account wherein such provision was made i.e. in case of account where additional provision was made @10% and further that account turned into NPA subsequently, then such amount of additional provision can be used for BDDR.
• This amount of additional provision cannot be used for the purpose of calculation of Net NPA.
• The additional provision will not be netted off from gross advances. It will be shown separately on liability side of Balance sheet.
• There is no bar on upgradation of account after 29^th Feb,2020 during intervening period from 1^st March,2020 to 31^st May,2020.
• In case of existent NPA account as at 29^th Feb,2020, usual IRAC norms aligned with ageing will continue to apply. E.g.- If the loan account was classified as Sub-standard as on 31^st March,2019 it will automatically slip to Doubtful category-1 as on 31^st March,2020.
• Circular provides for disclosure in Notes to account related to F.Y 2019-20, F.Y 2020-21 and half year ended 30.09.2020. Account details like no. of accounts, Outstanding balance etc. of those account where benefit has been availed will be required to be disclosed.
• Because of COVID-19 impact, MOCs may be required for upgradation of those account which have been auto marked as NPA as on 31^st March,2020 as circular regarding the provisioning was issued on 17^th April,2020.

Hope this article helps you. Happy reading!!

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This article is for guidance only, not to be substituted for detailed research or the exercise of professional judgement.